H&M’s new strategy is sparking an economic revolution

One of the world’s biggest retailers is geting a strategic overhaul. Let’s try to put H&M’s new strategy into context and look at the implications it might have.

This article is also available in Swedish.

In hindsight, some dates are given more historical significance than others. Remember where you were on September 11th 2001, when the two aircraft hit the Twin Towers? In hindsight, we can see that one of the victims of the terror attack there was that sense of ever-increasing openness and trust that characterized society during the last decades of the 20th century. A few years later, everything would have to be x-rayed, both in a figurative and literal sense.

Or do you remember where you were on September 15, 2008, when Lehman Brothers went out of business? In retrospect, we can see that bankruptcy was preceded by a moral bankruptcy, where greed and short-sightedness was left unattended for decades.

And do you remember which place you were on April 4, 2017, when the H&M Group presented their new bold strategy? Probably not, because the business press didn’t cover the exclusive event in Stockholm to which H&M invited only 200 people from around the world, me being one of them.

In hindsight, that day will most likely be viewed as an important date as it was the day where one of the world’s largest clothing retailers declared that they wanted to be a role model for the circular economy and thus sparked an economic revolution. It represents a whole new way of producing and consuming fashion and that is the reason why April 4th 2017 will probably be viewed as a day when the neoliberal market ideals were replaced by another economic ideology: the circular.

The H&M Group’s new vision is nothing less than to lead the change towards circular and renewable fashion while at the same time wanting to be a fair and equal company . The vision is backed by concrete goals as being 100 percent circular and renewable in 2030 and thus only using recycled and durable materials. That same year, H&M will ensure that all suppliers, and their suppliers, are completely climate-neutral.

Gone are careful wordings like “being one of the leading” or targets that were a little loose around the edges. When CEO Karl-Johan Persson took the stage to talk about the new strategy he declared that the company will reach the audacious goals without any hesitation in his voice.

The new strategy is three years in the making and seem to have had a revitalizing effect on the company. Everyone at H&M that I had the chance to talk to – from the group’s head of sustainability and her direct reports, to different innovation experts, textile geeks and sustainability controllers – all spoke of the strategy with confidence, something I haven’t experienced during the ten years that I now have followed the company closely.

In Spain, one is very proud of Inditex, one of H&M’s main rivals and a group that includes brands like Zara, Mango and Massimo Dutti. In Japan, one is equally proud of another H&M competitor, Uniqlo, and in the United States, one is thrilled when GAP Inc does something good just because they are American.

A similar patriotism would be strange in a Swedish context. While H&M is portrayed as a model in its field foreign press, the news coverage of H&M in Sweden is anything but proud of this would-be national icon. Here there’s an endless line of articles on the need for improving condition in the H&M supply chain, what is seen as distrustfully low prices and a general suspicion of H&Ms ambition to be a good citizen and to make money at the same time. Being Swedish, this puts me at a disadvantage when trying to put H&M’s almost unimaginable high ambitions into context, but I will  give it a try.

The original business idea of H&M was simply to sell fashion at the lowest price possible. The word quality was eventually added to that explanation in order to convince customers that the garments would last long despite the price on the price tag. In the 90s, when the debate on poor worker conditions in factories occupied the public spotlight and it became clear that someone else paid a high price for cheap fashion, H&M added a few more words to the business idea.” Fashion and quality at the best price in a sustainable way.”

Nevertheless, one has always been able to take a shot at H&M by criticizing them for selling fashion at such a low price it must harm the planet. And it’s a fair point too. Buying nothing is always better than buying something, even if its sustainable since it still has an impact on our planet.

While the previous strategy seemed to ignore this, this dilemma represented the starting point for the new H&M strategy. The argument goes something like this: In a few years we will be ten billion people on the planet and they all of them would need clothes. If one makes sure that clothes can be purchased, used and recycled in a circular economy that is completely sustainable, one eliminates all the negative impacts it may have.

In his remarks to the audience, Mr. Persson stated that H&M intends to break the connection between economic growth and increased use of resources. That statement reveals that the strategy has taken into account the fact that people can buy less clothing per capita in the future (which we hope) and that H&M wants to grow by gaining market share by attracting customers in larger numbers, and by expanding into new markets and in new segments. (The new brand Arket is a proof of that strategy.)

The new strategy is extremely ambitious, no matter what company it would have been presented it, let alone H&M. Take into consideration that the group is one of the world’s largest fashion companies, with 4351 stores, 161,000 employees and a turnover of 223 billion and the strategy is clearly without equals in this world.

Over the past few years, H&M has climbed the ranking lists of the most sustainable companies in the world for several years. With the new strategy, it is highly likely that they will be in the top, above Unilever, Patagonia, Tesla to name a few sustainability icons. None of these companies have a strategy that so clearly uses the principles of the circular economy as the basis. At least not yet, and that’s something for us Swedes to be proud of.

As I’ve noted before, the concept of the circular economy has gained more followers in recent years, but the theory itself have nevertheless been found on the outskirts of the economic debate. When a company with a turnover of 35 billion USD declares that they will become circular, this changes everything.

Whether Uniqlo, Inditex, GAP or any other of H&M’s competitors have been considering going circular or not,&M’s new strategy changes the game plan for them too. They have no choice – they must relate to it.

All modern economists understand that the theories of the circular economy are the future of a world of limited resources. The only thing missing in proclaiming this future has been that a big company would put all its weight behind this theory and change their strategy accordingly. That’s what happened on April 4th 2017.

As stated before, H&M’s new strategy is not only a breakthrough for the circular economics theories, it’s also an important break with old neoliberal theories. And again: Given the number of copy cats, trying to follow in H&M’s footstep, the group’s circular strategy it will have a major impact in the entire fashion industry. The result is nothing less than an economic revolution!

So why don’t you look around and make a note of where you were when you learned about how H&M’s new strategy changed the norm for which theory that would influence their strategy. You will want to remember this day.

(This post is also available in: Swedish)